U.S. Spotlight Fixed Squarely on AMLO as He Takes Reins in Mexico

On Dec. 1, Andres Manuel Lopez Obrador (AMLO) will be sworn in as Mexico’s president. AMLO’s presidency will have important ramifications for the United States.

Through trade, travel, heritage and history, U.S.-Mexico relations touch the daily lives of more American citizens than ties with any other country. The two countries trade over $1 million a minute, have over $100 billion in mutual investment and share a million border crossings a day.

AMLO promises a historic “transformation,” with wide-ranging reforms and new social programs. His electoral landslide last July gave him the congressional majorities he needs to reshape the landscape.

AMLO has reassured that he will be a pragmatic reformer, promising fiscal responsibility, respect for central bank autonomy and support for the new trade agreement with the United States and Canada. Nevertheless, he faces enormous challenges.

AMLO’s Dec. 1 inaugural address will provide a vision of his plans, but key indicators will inform about Mexico’s course.

Taking the reins of government: AMLO plans to slash the salaries of senior government officials and reduce their numbers to save money for new programs and to diminish corruption. He proposes to relocate the headquarters of key government ministries from Mexico City to other cities around the country.

How much the potential “brain drain” of Mexico’s senior civil service and the distractions of moving ministry locations will impact the federal government remains to be seen.

Surprises and extra costs may result from the staffing cuts, salary reductions and relocations, as well as from the learning curves for AMLO’s appointees lacking senior federal government experience.

Tackling public security and corruption: AMLO inherits what amounts to criminal insurgencies around the country. Violence is more widespread than six years ago and is carried out by more criminal groups.

Any government would find this to be an enormous challenge, but many AMLO votes were motivated by his promises to fix public security and go after corruption, so expectations are high. He and his team need to unveil a convincing security strategy, invest sufficient funds to give it a chance to succeed and carry it out well.

AMLO says he will sap corruption with government improvements, but questions remain over how and if AMLO will act against past corruption or stop future corruption. Progress will be difficult, given Mexico’s ineffective justice system.

Working with the private sector: AMLO and key advisors seek private investment to help create growth and jobs and finance infrastructure projects.

However, AMLO’s late October decision to cancel Mexico City’s multibillion dollar airport project, which is already under construction, set off alarms among Mexican and international investors worried about the security of future investments.

Particularly worrisome was the use of a questionable plebiscite to justify the decision. The privately-organized vote included only 1.2 percent of registered voters and seemed tilted toward canceling the project.

Businesses and investors are concerned about how the airport project and its investments will be handled now, while financial rating agencies expressed concern about the implications of this incident for future government decisions. AMLO’s chief advisors are working to reassure investors.

A workable energy strategy: Investors also have concerns about AMLO’s approach to energy. He has selected sharp critics of Mexico’s internationally-welcomed energy reforms for senior positions in the energy sector.

Companies invested in energy production and infrastructure worry that the new officials may limit or reverse the reforms that led them to invest, for example, by reducing the independence of regulatory agencies.

International experts are also anxious about the government’s plans for the debt-laden, state-owned oil company, PEMEX, to increase oil exploration and build new refining capacity to reduce Mexico’s dependence on imported U.S. gasoline.

Pemex still has major management, capacity and debt/liability problems. Many see it as the weakest link in a chain that could trigger bigger problems.

Energy specialists and rating agencies worry that there won’t be sufficient funds or capacity to meet PEMEX’s objectives. Missteps could raise borrowing costs for PEMEX and permeate the overall fiscal picture.

Maintaining budget prudence: AMLO’s first budget must be approved by mid-December. Markets will watch closely to see how the promised fiscal restraint will be reconciled with new investments in infrastructure, social programs, public security and the promise of a new lower tax zone along the U.S. border.

Every new administration faces tough trade-offs, but scrutiny will focus on the budget and its implementation because of AMLO’s promised “transformation” of Mexico.

Managing U.S. relations: AMLO has signaled his desire for good relations with the United States. The U.S. is vital for Mexico’s economy, because the U.S. buys 80 percent of Mexico’s exports. However, AMLO also wants to focus heavily on domestic reforms.

AMLO thus supported a quick renegotiation of the North American Free Trade Agreement (NAFTA). The new U.S.-Mexico-Canada Agreement (USMCA) is slated to be signed before AMLO’s inauguration, but much work remains to get it fully approved, especially by the U.S. Congress.

Press reports state AMLO intends to fire experienced trade negotiators as part of cost cutting. This could complicate finalizing the new trade framework with the United States.

Migration presents very difficult issues to work through. AMLO champions migrants’ rights, and Mexicans strongly sympathize with Central American migrants’ headed to the U.S. Yet, President Trump has taken a firm stance on undocumented migration across the U.S.-Mexico border.

AMLO raised broad ideas with President Trump about stopping migration and crime through a joint development plan that would include Central America as well as parts of Mexico, and that could include addressing border infrastructure and security.

AMLO also offered to provide work visas for Central Americans who otherwise might head to the U.S. It remains to be seen whether AMLO’s and Trump’s visions can be reconciled. U.S. and Mexican officials will need to work out a modus vivendi on migration issues soon after AMLO’s inauguration.

Similarly, U.S. and Mexican teams will need to review the wide range of bilateral cooperation on fighting drug smuggling and other cross-border crime.

Given the opioid crisis in the United States and the soaring homicide rates in Mexico, neither side can afford the long slowdown in bilateral cooperation that happened six years ago when President Enrique Pena Nieto took office.

However, with AMLO’s team introducing a new national public security strategy, there will need to be a serious examination of what works well and what doesn’t in bilateral cooperation. Both sides will need to quickly build confidence and mutual understanding on an agreed anti-crime strategy.

The success or failure of AMLO’s presidential agenda will significantly affect U.S.-Mexico relations.

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